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How much money will the developers of Parkmerced make by redeveloping the sprawling complex, more than doubling the size to 8,900 units?

Maybe not enough, according to a new report released by the city of San Francisco.

Following financial trouble, Parkmerced changed hands this fall from Stellar Management. The new majority owner, Fortress Investment Group, can expect a modest rate of return, and the project “may not be economically feasible” because of the down economy, according to the analysis of the project’s financials by CBRE Consulting. (Read it here)

But the dismal outlook is offset by the money coming in from renters living in the existing 3,221 units, making it more appealing to investors, the report says.

“We absolutely see it as economically viable,” Johston said. “We have managed to convince investors and because of that the LLC has been recapitalized with new investors. They see the ability to transform a neighborhood in one of the country’s traditionally hottest housing markets as a good investment for the long haul.”

The massive project is headed to the planning commission for approval in the coming weeks. The complex with its garden apartments was built in the 1940s. The new design imagines a dense development with thousands of new units and green amenities, like an organic farm.

Organized opposition to a project of such scale was minimal by San Francisco standards until earlier this year when thousands of tenants began to worry that their rent-controlled apartments would be destroyed for good.

Parkmerced has promised that the rent-controlled apartments will be replaced but preserved as rent controlled, although tenant activists worry that the agreement isn’t ironclad.

Dean Preston, executive director of Tenants Together, said the shaky financial picture only increases that worry.

"If the financial status of the property is not in good shape that's going to increase the pressure on the owner to take another look at the promises they made," said Preston. "This is a typical speculative scheme, and when things don't go as planned, it will give the developers an opportunity to renege on their promises."

The new report estimates that it will cost Parkmerced $158.9 million to subsidize the 1,538 rebuilt rent-controlled apartments. The developers will be paying another $200 million for other so-called community improvements, such as moving the Muni tracks so that the M-Oceanview goes into the development. The cost estimate for that project is $61.1 million.

Developers typically hope to get 20 percent return on their investments. But CBRE Consulting estimates that the return will be 17.8 percent. In a worse case scenario, with huge construction cost overruns and a continuing down economy, the rate of return could sink as low as 13.2 percent.

To generate the report, CBRE assumed that the price of a new condominium at Parkmerced would be just under $800,000. They assume annual rents would be $36.80 per foot square foot or about $3,000 a month for a 1,000-square-foot apartment.

Parkmerced spokesman Johnston said the owners haven’t come up with the prices for the new apartments, which will be built over the next few decades.

The Planning Commission will hold a hearing Thursday at 6 p.m. to discuss the CBRE report, the development agreement and an economic impact analysis.